First, be sure you have evaluated every financial implication of your purchase with a trusted financial advisor. Discuss what you think you can truly afford before you begin looking for your property. For example, your advisor will help you understand and prepare for some of the less obvious expenses associated with a resort property – expenses that can be much greater than those of a traditional property. For instance, your property may require more frequent maintenance to protect the exterior of a home located at the beach. Or, if you choose a mountain location, you should be aware that any exterior decks might require heavy maintenance as often as every other year.
Labor and material costs are typically much higher in resort markets as well; therefore, do not underestimate these costs as you evaluate the pros and cons of your decision. It’s not just the initial purchase price of resort property, but it includes all of the maintenance throughout your ownership.
Next, it’s essential that you have spent some time in the resort market in which you plan to purchase during all of the various seasons of the year. Such visits – even if only brief – will help you develop a truer picture of the area, year ‘round, and that it will fit your anticipated use. Understanding the possible seasonal nuances will facilitate an informed decision-making process. Therefore, work with a local Realtor® to insure that you have a good handle on the market.
Many resort communities have designated areas that permit owners to promote short-term rentals of their properties. However, other communities consider themselves more residential rather than commercial in design. If your new property will truly be a second home for you and your family, and not rental property that you only occasionally use, then it may be more logical to purchase property in a residential area of the resort market where short-term rentals are prohibited. On the other hand, if you will be renting out your property – even if only on occasion – you will need to understand some basic fundamentals to follow in evaluating any purchase decision where that rental income is part of the equation.
So, you should speak to multiple rental agencies in the resort market. Ask to see what similar properties in their rental program derive annually as their gross rental income. Also, be sure to ask about any costs associated with the rental program and understand what your net proceeds will be after commissions, cleanings, repairs, and so forth. Many rental agencies will also provide a rental projection statement for a property as part of the your purchase evaluation. Check around the market to see if this service is available, and then take advantage of the expertise and local market knowledge available.
If you are unable to find a local expert in the resort market, consider doing some of the research on rentals yourself. Sites such as vrbo.com and homeaway.com are great resources to find out what similar properties as the one you are considering buying are renting for and how frequently they are renting. You can search by neighborhood and property type on these online rental sites. Many rental agencies provide a hybrid service to assist owners who choose to do some direct rentals but who still want the traditional agency experience and local support. Again, you should discuss this information with your financial advisor (due diligence) so that you have a full picture of that specific market and the options available.
If your planned purchase is a villa or condominium, make sure that you have a full understanding of the legal governance of the condominium regime. States have different requirements covering the management and funding of regime operations, reserves, and insurance coverage. Request to see two to three years of annual meeting minutes of the homeowners’ association along with two to three years of approved budgets. These documents will reveal funding trends and/or the need for major capital improvements that may be lurking in the near future. Being informed will help avoid costly surprises!
Are you thinking about sharing your new resort property with family, friends, or business associates? If so, you must insist that all aspects of the arrangement be memorialized in writing. For example, such items as: Will usage be based upon the percentage of the capital contributed? When and how can you sell your portion? While some of these questions may be very basic, you would be surprised how issues not clearly spelled out in advance and in writing can become major points of contention down the road.
Following these simple tips and suggestions should serve you well. As we enter the spring and summer of 2014 we can see interest rates are still at very competitive, historic levels and many resort markets present amazing opportunities for purchasers who are considering a primary home, second home, or rental property. As in all of your financial transactions – better to be safe than sorry.